Australia & New Zealand Bank sounded a bearish note on
cotton futures, and was cautious over rebounds in sugar and dairy too, but
joined commentators upbeat on the beef sector.

The July-to-September quarter will offer "no reprieve" for cotton
futures, at their lowest in five years in New York on a front contract basis, depressed
by improved ideas for the US harvest, after drought-breaking rains in top
producing state Texas, besides concerns over Chinese demand.

"The price outlook for cotton is subdued despite a 22%
decline in futures prices since early May," ANZ said.

"The persistent negative fundamentals for cotton have
finally come to the fore, with any fast turnaround in sentiment unlikely.

"Near term, prices are likely to languish below 70 cents a
pound, with the potential for any modest rally not likely until the fourth
quarter, when Chinese demand typically improves."

Indeed, the US Department of Agriculture's next Wasde crop report,
on August 12, could further depressed cotton values, in raising estimates for
domestic production.

'Further liquidation likely'

One factor in cotton's favour was that at least managed
money has already sold down its net long position in New York futures and
options to the lowest since December 2012, reducing the potential for further
pressure from this score.

"Selling from this segment of the market now looks complete,"
ANZ said.

However, such a reduction in long positions is "not as
mature in sugar, with some further liquidation still likely, limiting any sugar
price upside in August".

The bank - also noting that Brazilian sugar export volumes
had fallen some 500,000 tonnes below average in May and June, typically
stronger months in coming in the early stages of the cane harvesting season –
said that sugar futures were likely to "continue to track sideways" for now.

That said, "price risks remain skewed to the upside in the fourth
quarter of 2014 and beyond for sugar consumers", with the potential for an
early finish to Brazil's cane crushing season.

Dairy vs beef

The bank was also cautioned over dairy prices, saying that any
recovery in prices may have to wait until inventories are worked through in the
second half of this year.

Even then "any bounceback is expected to be more modest than
previous cycles", restrained by "stable-to-higher" production in Oceania, a
region which, in New Zealand, includes the top milk exporting country.

However, the bank forecast a "strong" outlook for beef
prices, saying US data last Friday on the US herd, and the number of cattle on
feedlots, signalled "supply tightness for some time yet".

ANZ highlighted in particularly data showing
weaker-than-expected retainment of heifers, "suggesting the rebuilding of the
US herd will be slow".

The data was "positive" for Australian values too, which could
outperform if rains return to eastern cattle areas, encouraging larger herd
numbers.

"The discount between Australian and US cattle prices is at
its widest in 15 years. This would quickly narrow with a better wet season in
Australia later in the year."